Dutch telco KPN has admitted it is in merger talks with Belgacom.
Insiders quoted in the Financial Times said on Monday that KPN and Belgacom had reached the final stages of talks concerning a 50-50 merger, with personnel issues as the major remaining obstacle. KPN today said said, We are in talks. Not advanced talks, not exclusive talks.
KPN needs a partner. Its current debt is over E23 billion, compared with a market capitalization of E8.3 billion, and it had to shelve a planned rights issue last month. Due to the Netherlands’ size, KPN does not have the same fixed-line revenues as other heavily indebted European former telecoms monopolies. Adding Belgacom would increase the cash available to pay interest.
A merger could be complicated, as KPN and Belgacom operate competing mobile networks. KPN Orange competes with Belgacom’s Proximus in Belgium, while Belgacom owns 35% of the Netherlands’ smallest operator, Ben, which competes with KPN Mobile. The merged company would likely sell KPN Orange and the Ben stake. It has an option to sell the latter to Deutsche Telekom – but finding a buyer for KPN Orange might prove difficult. Orange sold its stake in the company to KPN earlier this year.
These disposals would probably be manageable. But the alliance would still have large amounts of money tied up in expensive, currently unprofitable projects – specifically, data network joint venture KPNQwest and German mobile operator E-plus. KPN has ruled out selling these, even though they could raise around E12 billion together. It’s not obviously in Belgacom’s interests to take these on.
However, not only would the rumored merger would leave Belgacom’s CEO John Goossens in charge of the company, but Belgacom also reportedly wants to keep KPN’s current management out of important positions. This condition may scupper any deal – but if Mr Goossens and his team succeed, the company could well change its strategy. The sale of the E-plus stake could be on the horizon after all, leaving Belgacom/KPN in a strong position in Benelux and with manageable levels of debt.
